Build-operate-transfer transport infrastructure investments and valuing growth option using compound real option-example of airport investment

Transportation industry which is developing with a fast pace, reached a different point with developments in aviation industry. But price of having the great benefits of aviation is expensive. This situation, made governments to find different ways for investments in aviation and Private Public Partnership (PPP) concept became a useful way of aviation infrastructure investments. Building and operating an airport is an important aviation infrastructure investment where PPP is actively being used. When airport investments are realized by PPP, it is inevitable that contracting time will be long because of the budget. Since the vast amount of income will be traffic revenues, it is not hard to see the high risk for the investor. Because events in country or in the world can effect travelling needs of people or cost of aviation in drastic amounts. Because of that, concessionaires must evaluate their expectations in a detailed way. While traditional valuing methods does not include uncertainities and possible management decisions in the future, valuing with Real Options (RO) which is a method developed later, gives the investor a more realistic look of the future. An airport planned to be built in Turkey as a PPP project is the main subject of the study. Apart from traffic revenues of the airport, investors are expecting to expanding their investment and gaining extra revenue from the flight academy, skydiving center and guesthouse which will be established on the airport. The project is cancelled by the government before the construction commences. The purpose of the study is to value the project as a multi-stage growth strategy and to find the best period to invest in the flight academy, skydiving center and guesthouse as growth option using compound real option method.